KATHMANDU (Reuters) - Nepal's crippling electricity shortage is set to worsen, with the Himalayan nation facing power cuts of 16 hours a day by mid-February, officials said on Friday, in a fresh blow to the Maoist-led government.

Power generation has fallen because mountain snows are not melting fast enough in winter and river levels are low, hampering an economy which has not recovered from a decade-long civil war.

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The government has declared a national power emergency, which it expects to last up to five years, and the electricity authority said daily power cuts would increase to 12 hours from nine hours from next week, and to 16 hours from mid-February.

"The situation will only worsen as we have no way to meet the demand," senior Nepal Electricity Authority (NEA) official Sher Singh Bhat said.

Nepal will not be able to achieve its economic growth target this year as a result, Trilochan Pangeni of the central Nepal Rastra Bank told Reuters.

"The target of achieving 7 percent growth of GDP will not be possible."

The government says the economy is estimated to have grown by 5.56 percent in 2007/08, compared with 3.0 percent in 2006/07.

Nepal's many rivers cascading down from the Himalayas have the potential to generate up to 83,000 megawatts (MW) of electricity, officials and experts say.

But last week Bhat told Reuters the country generates only 336 MW of total capacity despite demand for 770 MW, which rises by 60 MW a year.

The government said it would give a seven-year tax exemption to private companies producing hydroelectric power by 2012. It will also import electricity from India and install diesel-run generators in the next two months.

Opposition parties say the government has done little to help its people, more than one third of whom live on less than $1 a day, and argues diesel power is too costly for ordinary Nepalis.

Building expensive new power plants is politically sensitive in Nepal, one of the world's poorest nations.

Less than half of Nepal's 27 million people have access to electricity and the rest still largely depend on wood for cooking and heating.